The Treasury Secretary who surfs. The crisis was caused by excessive debt levels, the adjustment of which is now mostly behind us. Permanent investment tax credits for domestic R & D are on the way. So is a one year tax credit for capital investment. Stepped up spending on infrastructure is a big priority. The US will not engage in a debasement of its currency. There will be no non dollar reserve currency in our lifetimes. By any measure, the Chinese Yuan is undervalued. Promises, promises. Don’t expect to see any Geithner signed dollar bills soon.

Some interesting insights on how even Wal-Mart is doing its best to mask inflation by penny pinching here, there and soon, everywhere. Below is an example of 20% inflation in the span of a few weeks, which will most certainly not be captured in government statistics of food inflation. Additionally, with cotton just opening 470 ticks higher and 30 away from limit up, we hope readers took our advice from a month ago.

Measured by the Shanghai Stock Exchange Index, Chinese stock market advanced 12% in 10 trading days in October 2010. While investors big and small are celebrating their returns in a market where shorting stock is not allowed, a bigger topic emerges: how did it happen? Increasingly, people point their fingers to the direction of Beijing.

On the 19th of October, we told readers that Goldman is pitching a short EURCHF trade; and that, as a result, it is time to go long. Back then we said: "Like every other time Goldman says to do something, the prudent thing to
do is the opposite. Of course, this means more weakness for gold, as
the Swiss Franc is simply the safest equivalent of gold in the monetary
realm. Oh well - if better cost bases are to be had, than so be it." We were pretty much spot on, as usual, vis-a-vis our evaluation of Goldman involvement (and gold has indeed presented a better cost basis). Since then, the EURCHF has ploughed straight up, and gold has plunged. Just relased: Goldman has closed the EURCHF trade, after the 1.36 limit was hit. End result to clients - loss of 1.4%. End result to those who took our slightly jaded view on things: profit of 1.4%. We also suggest readers take profit on our "profit" limit being hit.

The market is now bracing for the November onslaught. Yet the next week will hardly be light on the data front. As Goldman describes, following the weekend’s meeting by the G20 finance ministers the markets will likely come to realize that the immediate impact on current trends in FX will be limited. It is therefore likely that attention will shift back to data once again and on the likely course of action by the Fed. On the data front, we have a heavy data week in the US with GDP, Chicago PMI, durable goods and consumer confidence. Overall and on balance we are less positive than consensus albeit by a smaller number. Potentially hawkish comments from central bank meetings in Poland and Sweden could be catalysts for FX appreciation. Finally, data out of Europe includes another German employment report and a UK GDP. We expect both to show further improvements.

The Commitment of Traders Report is created by the CFTC – The Commodity Futures Trading Commission and is published weekly every Friday. This body gathers and publishes the open futures positions on all publicly traded US futures contracts as well as the corresponding options. The data consists of 3 main categories.

With just over a week left to the QE2 announcement, discussion over the amount, implications and effectiveness of QE2 are almost as prevalent (and moot) as those over the imminent collapse of the MBS system. Although whereas the latter is exclusively the provenance of legal interpretation of various contractual terms, and as such most who opine either way will soon be proven wrong to quite wrong, as in America contracts no longer are enforced (did nobody learn anything from the GM/Chrysler fiasco for pete's sake), when it comes to printing money the ultimate outcome will certainly have an impact. And the more the printing, the better. One of the amusing debates on the topic has been how much debt will the Fed print. Those who continue to refuse to acknowledge that the economy is in a near-comatose state, of course, hold on to the hope that the amount will be negligible: something like $500 billion (there was a time when half a trillion was a lot of money). A month ago we stated that the full amount will be much larger, and that the Fed will be a marginal buyer of up to $3 trillion. Turns out, even we were optimistic. A brand new analysis by Jan Hatzius, which performs a top down look at how much monetary stimulus is needed to fill the estimated 300 bps hole between the -7% Taylor Implied Funds Rate (of which, Hatzius believes, various other Federal interventions have already filled roughly 400 bps of differential) and the existing 0.2% FF rate. Using some back of the envelope math, the Goldman strategist concludes that every $1 trillion in new LSAP (large scale asset purchases) is the equivalent of a 75 bps rate cut (much less than comparable estimates by Dudley, 100-150bps, and Rudebusch, 130bps). In other words: the Fed will need to print $4 trillion in new money to close the Taylor gap. And here we were thinking the economy is in shambles. Incidentally, $4 trillion in crisp new dollar bills (stored in bank excess reserve vaults) will create just a tad of buying interest in commodities such as gold and oil...

If there is one thing that everyone should watch to understand just why every policy attempt to fix the ongoing depression is doomed, it is the following short clip from Niall Ferguson in which he deconstructs the primary fatal flaw of Keynesianism. Ferguson explains why those who push for Keynesian policies in a globalized world are doing nothing to stimulate the economy, but merely inflate ever more bubbles. Quote Ferguson: "I wonder if it's worth revisiting the now familiar debate about whether or not Keynes can save us. Because I have some doubts about this. Deep doubts." Zero Hedge has no doubts about this - we are confident that the confines of a theoretical Keynesian system have been the recipe for the disaster unfolding now before our eyes (which is not to say that Austrian economics is necessarily better, although intuitively they certainly make a far more compelling case, and would certainly not have led to the current pre-apocalyptic economic situation, which only the most addicted to Kool Aid pig lipstickers refuse to acknowledge). However, that is not news - we have always made our position on the false voodoo religion of economics well known. We are, however, happy that more and more of the "mainstream fold" are finally starting to question the key flawed premise of this fundamentalist doctrine.

Bo Peng submits a theoretical thought experiment on the discontinuity of security prices in a world in which two bids one millisecond apart are an eternity away from each other thanks to supercomputers in charge of markets, and thus the price discovery function can go anywhere from zero to infinity in the space of nanoseconds. Are the now daily flash crashes nothing more than an actual representation of the fractal nature of markets, as popularized by the now late genius Benoit Mandelbrot, and as was validated on Zero Hedge some time ago? If so, prepare for a market in which melt downs and melt ups become a daily, hourly and millisecondly fact of life.

Is Indonesia the next China? Despite the triple digit return, it could still be early days for the world’s largest Muslim country. Since the rumblings about a global, synchronized QEII began in September, $2 billion a day has been flooding into emerging markets, and Indonesia has been at the top of the list. A rupiah that has been steadily appreciating against the dollar has added a nice double leveraged effect to the upside. (IDX), (EIDO)